YOUR COMPANY IS LOOKING FOR BUSINESS CREDIT LINE SOLUTIONS!
BUSINESS LINE OF CREDIT NEEDS? WE'VE GOT THEM
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
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Oakville, Ontario
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Business credit line rates in Canada. What factors determine the cost of lines of credit for your company based on the type of revolving credit line you choose and the particular characteristics of that type of facility? The reality? You've got two basic choices for this method of Canadian business financing for a business loan, and it's perfectly legal to check out and consider both! Let's dig in.
THERE ARE 2 TYPES OF BUSINESS CREDIT LINES IN CANADA - WHICH ONE WORKS FOR YOUR COMPANY
One of the largest misconceptions in Canadian business is the fact that there is only 1 type of business credit line in Canada for small businesses. Wrong! Your company has the choice of the traditional (and revered?!) Canadian chartered bank facility. But in recent years there is a new kid on the block, the non-bank Asset-based Credit Line.
THE CANADIAN CHARTERED BANK SOLUTIONS
In the past, we are more than sure that most businesses view the bank facility as the best and only way to go re cost and flexibility and borrowing power. It certainly the case when it comes to cost, as Commercial credit lines are based on bank spreads that more often than not come in at 1 or 2% above the current prime rate. These days with rates ( fixed / variable rate ) being so low the bank credit line is tremendously appealing and terms and conditions are flexible.
5 KEY REQUIREMENTS FOR BUSINESS BANK FINANCING IN CANADA
When the bank facility isn’t appealing is when your firm doesn't qualify for traditional bank criteria which at the end of the day revolve around a small handful of key metrics:
Size of facility
Debt to Equity ratio
Cash Flow Coverage
Profits
Business Owner Personal Credit Score/Net Worth
If your firm has the financial appeal to a Canadian bank a feeding frenzy can easily occur as the banks step over each other racing for your business. What a great deal.
THE ASSET BASED LENDING CREDIT FACILITY
On the other hand, your business financing need for a revolving credit line in Canada can be fully satisfied by an ABL. It's a non-bank credit line that fundamentally lumps together all your current and fixed assets and allows you to borrow against them in one facility, with a credit limit that grows as your business revenues increase. Confusion often exists when we explain that offering to clients as they can be forgiven as to how they can maintain a business credit line outside the bank. Trust us... they can.
THE COST OF ASSET BASED FINANCING
The pricing on Asset-based credit lines fluctuates, and that's a bit of an understatement. Typical facilities range at a minimum in the 250k range, and many of the largest corporations in Canada borrow tens of millions of dollars under this type of arrangement.
How does pricing work in ABL, as compared to the bank? Here's the straight answer on that. If your firm can satisfy the 4 key elements of bank business credit lines, as we have noted above, your firm can match or beat bank pricing where the interest rate and your ability to pay interest is always going to be satisfactory and commensurate with your business credit quality.
The reality is though that the ABL business credit line rates offer more borrowing power and less restrictive credit criteria for approval. As a result the pricing typically is higher and in some cases much higher than bank financing. So the correct answer is that ABL credit facilities range anyway from Prime rate to as much as 1.5% per month, essentially mezzanine type rates.
CONCLUSION
Business owners and financial managers need to balance credit line rates against their ability to satisfy lending criteria and access short term capital they might not be otherwise able to get approved for. Interest rates will typically always be higher in asset-based financing credit lines but that must be balanced against access to capital versus cost of capital.
So, what type of credit line and pricing works for your firm's business needs? Small business in Canada in the SME economy needs access to capital. Seek out and speak to a trusted, credible, and experienced Canadian business financing advisor with a track record of delivering business credit facility solutions.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop
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